Exhibit 15-3

-Refer to the graph in the exhibit.What is the natural rate of unemployment?

A) 2 percent, because the natural rate of unemployment occurs at the intersection of the curves
B) 4 percent, because the natural rate of unemployment is on the long-run curve
C) 8 percent, because the natural rate of unemployment is the most the economy can attain with high inflation
D) 10 percent, because the natural rate of unemployment is the most the economy can attain

Question

Exhibit 15-3
 
-Refer to the graph in the exhibit.What is the natural rate of unemployment?
 
A) 2 percent, because the natural rate of unemployment occurs at the intersection of the curves 
B) 4 percent, because the natural rate of unemployment is on the long-run curve 
C) 8 percent, because the natural rate of unemployment is the most the economy can attain with high inflation 
D) 10 percent, because the natural rate of unemployment is the most the economy can attain

Quizplus · Accepted Answer

The natural rate of unemployment is the rate at which there is no cyclical unemployment, meaning unemployment due to business cycle fluctuations. In the graph, the natural rate of unemployment is at the point where the short-run Phillips curve intersects with the long-run Phillips curve, which is at approximately 4 percent. Therefore, option B is the correct answer. Option A is incorrect because the intersection of the curves is not necessarily the natural rate of unemployment in all cases. Option C is incorrect because the natural rate of unemployment is not related to inflation. Option D is incorrect because 10 percent is well above the natural rate of unemployment, and any unemployment rate above the natural rate is due to cyclical unemployment.

Exhibit 15-3 -Refer to the Graph in the Exhibit.What Is the Natural